nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒07‒20
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Are Economists' Preferences Psychologists' Personality Traits? A Structural Approach By Jagelka, Tomáš
  2. Negative Childhood Experiences and Risk Aversion: Evidence from Children Exposed to Domestic Violence By Castillo, Marco
  3. Biased Health Perceptions and Risky Health Behaviors: Theory and Evidence By Arni, Patrick; Dragone, Davide; Götte, Lorenz; Ziebarth, Nicolas R.
  4. Status Quo Bias Beats the Decoy Effect and Reverses Attitudes Toward Risk By Miguel Costa-Gomes; Georgios Gerasimou
  5. Are Personality Traits Really Fixed and Does It Matter? By Stillman, Steven; Velamuri, Malathi
  6. Belief-Dependent Motivations and Psychological Game Theory By Pierpaolo Battigalli; Martin Dufwenberg
  7. Projection bias in environmental attitudes and behavioral intentions By Sophie Clot; Gilles Grolleau; Lisette Ibanez
  8. Fake News, Voter Overconfidence, and the Quality of Democratic Choice By Melis Kartal; Jean-Robert Tyran
  9. Are simple mechanisms optimal when agents are unsophisticated? By Jiangtao Li; Piotr Dworczak

  1. By: Jagelka, Tomáš (University of Bonn)
    Abstract: This paper proposes a method for empirically mapping psychological personality traits to economic preferences. Careful modelling of random components of decision making is crucial to establishing the long supposed but empirically elusive link between economic and psychological systems for understanding differences in individuals' behavior. I use factor analysis to extract information on individuals' cognitive ability and personality and embed it within a Random Preference Model to estimate distributions of risk and time preferences, of their individual-level stability, and of people's propensity to make mistakes. I explain up to 50% of the variation in both average risk and time preferences and in individuals' capacity to make consistent rational choices using four factors related to cognitive ability and three of the Big Five personality traits. True differences in desired outcomes are related to differences in personality whereas actual mistakes in decisions are related to cognitive skill.
    Keywords: economic preferences, personality traits, decision error, measurement error, stochastic discrete choice
    JEL: D91 D80 D01
    Date: 2020–05
  2. By: Castillo, Marco (Texas A&M University)
    Abstract: Using a longitudinal study of 1,900 Peruvian children, I show that children who grow up in a household where mothers report experiencing domestic violence are more risk averse and have lower cognitive development. Risk attitudes are measured with an incentivized experiment. The effect of domestic violence on risk attitudes is not mediated by cognitive development and suggests that early negative experiences in life can directly influence the risk attitudes of children. This experience is associated with other behavioral changes as well, including lower physical activity and higher BMI.
    Keywords: domestic violence, cognitive development, risk preferences, children
    JEL: C93 J13
    Date: 2020–06
  3. By: Arni, Patrick (University of Bristol); Dragone, Davide (University of Bologna); Götte, Lorenz (University of Bonn); Ziebarth, Nicolas R. (Cornell University)
    Abstract: This paper investigates the role of biased health perceptions as driving forces of risky health behavior. We define absolute and relative health perception biases, illustrate their measurement in surveys and provide evidence on their relevance. Next, we decompose the theoretical effect into its extensive and intensive margin: When the extensive margin dominates, people (wrongly) believe they are healthy enough to "afford" unhealthy behavior. Finally, using three population surveys, we provide robust empirical evidence that respondents who overestimate their health are less likely to exercise and sleep enough, but more likely to eat unhealthily and drink alcohol daily.
    Keywords: health bias, health perceptions, subjective beliefs, overconfidence, underconfidence, overoptimism, risky behavior, smoking, obesity, exercising, SF12, SAH, BASE-II
    JEL: C93 D03 D83 I12
    Date: 2020–05
  4. By: Miguel Costa-Gomes; Georgios Gerasimou
    Abstract: Inertia and context-dependent choice effects are well-studied classes of behavioural phenomena. While much is known about these effects individually, little is known about whether one of them "dominates" another. Knowledge of any such dominance is important for effective choice architecture and for accurate descriptive modelling. We initiate this empirical investigation with a lab experiment on choice under risk that was designed to test for dominance between *status quo bias* and the *decoy effect*. We find that the former unambiguously prevails over the latter and is powerful enough to make the average subject switch from being risk averse to being risk-seeking. The observed reversal in risk attitudes is explainable by a large class of Kozsegi-Rabin (2006) reference-dependent preferences.
    Date: 2020–06
  5. By: Stillman, Steven (Free University of Bozen/Bolzano); Velamuri, Malathi (Chennai Mathematical Institute)
    Abstract: A nascent but burgeoning literature examines the importance of non-cognitive skills in determining success across many facets of life. The majority of these papers treat these skills as fixed traits for adults. We estimate the impact of a number of life events on the Big Five personality traits and locus of control. A subset of life events have large impacts on these non-cognitive skills, especially on locus of control. For some events, these impacts persist in the medium-run. We then demonstrate that treating personality traits as fixed can lead to biased estimates of their relationship with socioeconomic outcomes.
    Keywords: personality, non-cognitive skills, life events, fixed
    JEL: J24 C18
    Date: 2020–06
  6. By: Pierpaolo Battigalli; Martin Dufwenberg
    Abstract: The mathematical framework of psychological game theory is useful for describing many forms of motivation where preferences depend directly on own or others’ beliefs. It allows for incorporating, e.g., emotions, reciprocity, image concerns, and self-esteem in economic analysis. We explain how and why, discussing basic theory, experiments, applied work, and methodology.
    Keywords: psychological game theory, belief-dependent motivation, reciprocity, emotions, image concerns, self-esteem
    JEL: C72 D91
    Date: 2020
  7. By: Sophie Clot (UOR - University of Reading); Gilles Grolleau (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEREN - Centre de Recherche sur l'ENtreprise [Dijon] - BSB - Burgundy School of Business (BSB) - Ecole Supérieure de Commerce de Dijon Bourgogne (ESC)); Lisette Ibanez (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: The projection bias corresponds to the human tendency to project current preferences into the future as if present tastes remained unchanged. We apply the projection bias to the environmental domain and design a survey experiment to investigate its relevance on two environmentally friendly initiatives, namely solar panels and eco-friendly transport. We found that some attitudes and behavioral intentions are subject to positive change when individuals are solicited a day when the weather is congruent with the proposed changes. We draw several policy and managerial implications for ecological issues.
    Keywords: environment,experimental survey,projection bias,solar panels,transport.
    Date: 2020–06–18
  8. By: Melis Kartal (Vienna University of Economics and Business); Jean-Robert Tyran (Department of Economics, University of Copenhagen, Denmark)
    Abstract: This paper studies, theoretically and experimentally, the effects of overconfidence and fake news on information aggregation and the quality of democratic choice in a common interest setting. We theoretically show that overconfidence exacerbates the adverse effects of widespread misinformation (i.e., fake news). We study extensions that allow for partisan biases, targeted misinformation intended to move public opinion in a specific direction, and correlated news signals (due to for example media ownership concentration). In our experiment, voters are exposed to correct news or misinformation. The extent to which a subject is likely to observe correct news depends on their cognitive ability. Absent overconfidence, more cognitively able subjects are predicted to vote while less able subjects are predicted to abstain, and information is predicted to aggregate well. We provide evidence that overconfidence induces misinformed subjects to vote excessively, thereby severly undermining information aggregation.
    Keywords: behavioral political economy, voting, misinformation, Dunning-Kruger effect
    JEL: D72 D83 D91
  9. By: Jiangtao Li (National University of Singapore); Piotr Dworczak (Group for Research in Applied Economics (GRAPE); Northwestern University)
    Abstract: We study the design of mechanisms involving agents that have limited strategic sophistication. The literature has identified several notions of simple mechanisms in which agents can determine their optimal strategy even if they lack cognitive skills such as predicting other agents' strategies (strategy-proof mechanisms), contingent reasoning (obviously strategy-proof mechanisms), or foresight (strongly obviously strategy-proof mechanisms). We examine whether it is optimal for the mechanism designer who faces strategically unsophisticated agents to offer a mechanism from the corresponding class of simple mechanisms. We show that when the designer uses a mechanism that is not simple, while she loses the ability to predict play, she may nevertheless be better off no matter how agents resolve their strategic confusion.
    Keywords: Simple mechanisms, complex mechanisms, robust mechanism design, dominant-strategy mechanisms, obviously strategy-proof mechanisms, strongly obviously strategy-proof mechanisms
    JEL: D71 D82 D86
    Date: 2020

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